If you’re currently having a tough time managing your finances, having an emergency fund in place can help you stay afloat. Setting up an emergency fund means that you’ll always have some money to lean on during extreme financial difficulties. Many people rely on their emergency fund when they lose a job or are forced to cover an unexpected expense. Here’s an overview of why it’s beneficial to set up an emergency fund.
1. You Don’t Follow a Strict Budget
Perhaps you have started trying to establish a strict budget, but you forget to cover some of the monthly expenses. If you become overwhelmed due to the state of your finances, you can rely on your emergency fund. You can adjust your emergency fund as your financial needs change over time.
2. You Only Have One Primary Source of Income
Establishing an emergency fund is important if you only have primary sources of income that you rely on to meet all of your needs. Things may become tight if you suffer an unexpected illness that prevents you from working for an extended period of time. Perhaps you suffer a tooth injury that causes severe pain, and you’re forced to take time off work or cover an unexpected expense. According to recent stats, almost 50% of adults over 30 have some form of periodontal disease.
3. Car Issues
One of the most significant financial emergencies that people deal with is car issues. Perhaps your engine breaks down out of nowhere, or you’re involved in a serious accident. While auto insurance should assist with some of the repair costs, you may still be responsible for covering your deductible. Things may get complicated if you’re going through a tight financial situation. Having an emergency fund in place protects you and ensures that you won’t do any short-term damage to your finances. Having an emergency fund also covers you if you are held liable for causing damage to another vehicle. Perhaps, the impacted party decides to sue you. You’ll need money to defend yourself in court. Keep in mind that recent data highlights over 30% of people who can’t make bail on their own will have their case resolved or dismissed.
4. Emergency Home Expenses
Perhaps you’re living comfortably with your spouse and a couple of children. According to a recent study, over 90% percent of people get married before the age of 50 in the United States. As a homeowner, you’re responsible for performing regular maintenance. Perhaps unexpected plumbing or HVAC issues arise. Covering these repairs can get expensive, which is why establishing an emergency fund is beneficial. This way, you can relax if an unexpected home repair issue arises because you have the funds to take care of it.
5. Cover a Large Tax Bill
Filing taxes is generally unpredictable. One year you may receive a refund and the next you may owe some money. You may be surprised to learn that you filed a significant amount of money. If your finances are limited, you could rely on your emergency fund to pay your taxes.
6. Unexpected Travel
If you have to make an emergency trip to visit a loved one, covering last-minute transportation costs is generally expensive. You can rely on your emergency fund during these tough times. You don’t want your finances to stand in the way of you getting a chance to spend time with your loved ones.
7. You Have a Long-Term Goal You’re Trying to Reach
Finally, you could be saving money to start your own business or purchase a new car. You’ll need stable finances in order to accomplish long-term goals. One unexpected emergency could prevent you from accomplishing your goals or extend the time it takes to reach them. However, relying on an emergency fund during troubling can help stabilize your financial situation.
There are multiple positive benefits to establishing an emergency fund. You can prevent a minor setback from damaging your long-term financial situation. Remember these tips as you look to build your fund.